Can I Discharge a Personal Loan in Bankruptcy?

Full question:

I signed a promissory note about three years ago to a man that had asked me to marry him. He offered to lend me $20,000.00 to eliminate my credit card debt. I suggested that we put the loan in writing...he had not planned to do so. The only reason I agreed to the loan was because I thought we were getting married, which never happened. I did not want to accept the loan, and specifically stated my hesitation to the lender to which he replied 'I would never come after you, it's only money.' Since that time, I was forced to move my family from our family home of 15 years...the house was sold at short sale. I am having to take my former husband to court for not being current in child support and Alimony, I now rent a home rather than own, and have health issues which keep me from holding down a traditional job, do not have the education to command a high paying job, am 51 years old and haven't worked in over 25 years, so don't have the skills to command a decent paying job. Currently, I do not have the ability to pay this debt. I offered to pay him once the legal situation is cleared up with my former husband, but he is looking to take legal action. What are my options, can I file chapter 7 or 13 against this debt? I cannot take a personal loan, as I have no collateral. Thank you in advance for your assistance.

• Category: Bankruptcy
• Date: 04/07/2025
• State: Georgia

Answer:

It is possible the debt may be discharged in bankruptcy. If you have no assets or income other than disability payments or exempt income , you may be judgment proof, meaning unable to collect payment from. Bankruptcy filing may be unproductive when a person is judgment proof. Prior to making a decision to file bankruptcy, each individual should first attempt to contact his or her creditors and determine whether it is possible to obtain their cooperation in working out a different payment schedule. Most people would be surprised to learn that creditors often are willing to make reasonable modifications to assist the debtor in repayment. Communication and honesty are the key words here. In exploring this option, the creditor should be honest and forthright with the creditor regarding one's financial situation. The automatic stay is one of the most valuable functions of a bankruptcy proceeding for the debtor seeking relief from creditors. The automatic stay immediately stops any lawsuit filed against you and virtually all actions against your property by a creditor, collection agency or government entity and provides an injunction against the continuance of any action by any creditor against the debtor or the debtor's property. After filing for bankruptcy, the automatic stay will prevent creditors from calling and harassing the debtor in any way. In fact, should a creditor continue to attempt to contact the debtor during the automatic stay, that creditor could be held liable for damages.

I suggest attempting to settle the debt before they obtain a court judgment. Once a judgment is obtained, the creditor will likely be unwilling to negotiate a settlement and may place liens on property, such as bank accounts, or garnish wages. In some cases, a debtor may be able to negotiate a settlement with the creditor, although this is more difficult once a suit has been filed. In some cases, the creditor may settle for a lesser amount if the debtor is insolvent, since a promise to pay something is better than collecting nothing. These types of agreements are called an accord and satisfaction. If it is possible, a debtor should get a release included in such an agreement so that the creditor may not pursue the full balance of the debt claimed.

You have probably heard of debt relief companies. There are also some companies, even credit card companies, that will work out a compromise settlement or reduced monthly payment. Family and friends are also sometimes options. There is really no good answer to your problem, a problem that many people face. Thus options include, but are not limited to, bankruptcy, debt relief company, compromise you do yourself, friends, family, loans. I suggest you resolve the charges before a lawsuit is filed to collect the money owed, which may further damage your credit history.

Another option to examine is Consumer Credit Counseling Service. CCC is a nationwide nonprofit organization that attempts to work with both the debtor and his or her creditors to devise a more manageable repayment plan. This service very often results in revised payment plans which are acceptable to both the debtor and the creditor, thereby eliminating the need to file bankruptcy.

If you need help negotiating with your creditors, consider contacting a nonprofit debt counseling organization. You can find a list of counseling agencies by location at the website of the U.S. Trustee, www.usdoj.gov/ust (select "Credit Counseling and Debtor Education.") The federal government has authorized the agencies on this list to provide counseling to debtors considering bankruptcy. However, don't pay anyone to "fix" your credit.

The following link allows you to search by area for financial counselors recommended by Dave Ramsey:

http://www.daveramsey.com/coaching/find-coach/

Please read the tips from the Better Business Bureau on selecting a credit counselor :

http://www.bbb.org/alerts/article.asp?ID=613

The following organization is a referral from the Better Business Bureau:

http://www.clearpointcreditcounselingsolutions.org/?source=bbb_tip_choose